You only need cast your mind back three years to remember the recent peaks of the cost-of-living crisis here in the UK.
That pinch point in household and business finances followed three seismic events for Britain. Those events were the Brexit referendum (and eventual departure from the EU), the Covid-19 pandemic (and associated lockdowns) and the Russia/ Ukraine war (and its impact on energy prices in particular). And the (in)famous Liz Truss “fiscal event” of September 2022 didn’t help much either.
All these events happening in concert resulted in double digit inflation numbers, and to combat this challenge the Bank of England (BOE) was then forced to raise interest rates on 14 occasions in just 20 months.
The previous cost-of-living crisis
The result was, of course, that uncomfortable and unacceptable cost-of-living crisis that posed so many economic problems for the government, businesses and individual citizens across the nation.
The good news is that an easing over time of many of these issues, combined with the corrective actions of (then) Chancellor Jeremy Hunt, eventually led the nations finances back to a less immediately perilous position. And with inflation now sitting at a more comfortable 3% per annum, and the bank base rate having dropped three times since last summer, things were starting to look a little better for workers and businesses alike.
Yet now a new and rather unexpected threat to the nation’s finances is forming on the other side of the Atlantic. For the return of Donald Trump to the White House poses a new treble threat to the financial wellbeing of the UK.
Trade tariffs
Firstly, and most obviously, we have the often-repeated Trump threat of trade tariffs. Whilst the UK has not yet been overtly targeted with such tariffs, there are no guarantees that they won’t be applied in the months immediately ahead. And even if the UK does escape direct sanction, as a very open economy the impact of raised costs elsewhere will also be felt via increased prices here in Britain.
It is worth noting that the tariffs being discussed are far from insignificant. Trump has spoken of a 10% tariff on all goods and services into the USA, and more recently has been actively promoting the idea of 25% or even 50% tariffs on his closest geographical neighbours (and major trading partners) Canada and Mexico. Such high figures will have a knock-on impact to even those nations not directly trading with the USA.
Defence spending
Another financial challenge for the UK – and indeed our closest trading partners the European Union – is the dramatic withdrawal of America’s defence spending here in Europe.
This change of direction by the White House – effectively ditching some 80 years of cooperation and support in just a matter of days – has left European governments facing a very significant black-hole in defence spending. And this at a time when most European economies are still navigating a lengthy post-Covid economic stagnation whilst simultaneously supporting the Ukrainian war effort.
It follows that, realistically, the UK government will have to reduce spending in other areas and certainly won’t be able to focus as much financial firepower on supporting businesses and the economy as they would like.
Benefit cuts
The above will also undoubtably lead to the containment or curtailment of some government supported benefits and tax incentives. This week the Work and Pensions Secretary, Liz Kendall, announced a “shake up” to the welfare system, that will effectively act as a cut in benefits to some working age people.
And next week the Chancellor of the Exchequer, Rachel Reeves, will provide her Spring Statement. This announcement is now taking on the appearance of a full Budget statement given the challenges from the other side of the Atlantic, and the lack of any remaining economic headroom since the autumn 2024 Budget was delivered.
The return of the cost-of-living crisis?
These new challenges are worrying. Even more so when it is already clear that April will witness a range of increased costs for consumers including energy, council tax and utilities. April is also the moment that the significant increase in National Insurance costs will be felt by employers, with much of those costs potentially passed on to consumers in higher prices.
When taken together it seems likely that at least some elements of the cost-of-living crisis might soon be returning to UK workers. This matters to employers, as poor financial wellbeing can impact both mental and physical health. These pressures can – and often do – lead to absence, poor engagement, and reduced productivity over time also.
It follows that 2025 could well be another difficult year for personal and business finances, and we will explore the options available for employers to respond to these challenges in our future posts and, of course, in our quarterly webinars (more details and how to participate here).
About Occupational Health Assessment Ltd
Occupational Health Assessment Ltd are a nationwide occupational health provider.
We provide rapid access to expert occupational health support for businesses right across the United Kingdom. Appointments are available nationwide within two days.
With a unique occupational health assessment service, night worker health assessments, fitness certifications and access to clinics in Belfast, Birmingham, Bradford, Brighton, Bristol, Cardiff, Coventry, Derby, Edinburgh, Glasgow, Hull, Leeds, Leicester, Liverpool, London, Manchester, Newcastle, Northampton, Nottingham, Plymouth, Portsmouth, Reading, Sheffield, Southampton, Stoke, Surrey and more, the business provides high quality, expert medical advice.
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